Action Required By 2023 Year-End To Qualify For Key Tax Benefit

Christmas may be coming early for those investing in Qualified Opportunity Funds (“QOFs”). The U.S. House of Representatives Ways & Means Committee is currently considering legislation that would enhance opportunity zones and extend the program’s tax incentive deferral date by two years, from December 31, 2026 to 2028. The legislation, called the “Opportunity Zones Transparency, Extension and Improvement Act” (H.R. 5761), has bipartisan support and incorporates fresh mandates that are proposed to reform and improve the current opportunity zones tax incentive.

Specifically, the new legislation would do the following, among other things:

• Extend the Capital Gains Tax Deferral for Two Years. An eligible investor may defer recognition of capital gains (short-term or long-term) resulting from the sale or exchange of capital assets (or business assets the gain on the sale of which is treated as capital gain) by reinvesting those gains into a QOF within a period of 180 days generally beginning on the date of the sale or exchange (the “Deferred Capital Gains”). Under current opportunity zone rules Deferred Capital Gains are recognized on the earlier of December 31, 2026 or the date on which an inclusion event occurs. December 31, 2026 is also the final date on which an investor can recognize a capital gain eligible for reinvestment into a QOF. The proposed legislation would push this date back by two years, to December 31, 2028.
• Expand Reporting Requirements. QOFs and qualified opportunity zone businesses (“QOZBs”) would be subject to expanded information reporting requirements designed to provide data on job creation and growth, while individual investors would be subject to expanded information reporting requirements designed to allow the Internal Revenue Service to better track both the deferral and recognition of capital gains. In addition, the Treasury would be required to produce certain comprehensive public reports of aggregated information.
• Modification of Qualified Opportunity Zone Tracts. The legislation would provide for the early sunsetting of the small percentage of opportunity zones that have median family income at or above 130% of the national median family income. Additionally, states would have the opportunity to designate new high-need communities to replace any sunset zones.
• Allow for Fund of Funds Structures. Currently, a QOF is not permitted to invest into other QOFs. The proposed legislation would allow a QOF to be organized as a feeder fund, in a “fund of funds” structure, so long as there is only one QOF-to-QOF transaction before fund are invested into a QOZB or qualified opportunity zone property, which would potentially help smaller communities and projects raise funds more easily.
• Establish a State and Community Dynamism Fund. The proposed legislation would establish $1 billion State and Community Dynamism Fund, which would provide flexible grants, operating support and technical assistance to states and territories in an effort to drive capital to projects and businesses in underserved communities.
• Designate Certain Brownfield Tracts as Opportunity Zones. The proposed legislation would allow for zero population, formerly industrial brownfield tracts that are adjacent to current opportunity zones to be designated as opportunity zones.

In a press release announcing introduction of the legislation, U.S. Representatives Mike Kelly (R-PA), Chairman of the Ways and Means Subcommittee on Tax stated:

“Opportunity Zones have breathed new life into neighborhoods and Main Street businesses that have not seen private investment in years, all without spending a single taxpayer dollar … .  This legislation builds upon the successes of Opportunity Zones and now adds new guidelines to make sure this program can benefit more communities for years to come.”

In our view the two-year extension of the capital gains deferral period is a monumental benefit.

It is our firm view that Belpointe PREP, LLC (“Belpointe OZ”) (NYSE: American “OZ”)—a QOF that is building and acquiring multi-family residential properties—could make for a sound choice for investors to consider as the year winds down. We think the most recent disclosure of Belpointe OZ’s net asset value (“NAV”) at $103.50 per Class A unit is notable, with the units trading at $72 as of November 28. We believe such a steep discount to NAV offers investors an upside potential and attractive exposure to the full-featured apartment category in target markets that our research shows are experiencing growth both in terms of migration trends and employment opportunities.

Belpointe OZ has two Class-A multi-family projects coming online in 2024 and 2025. Belpointe OZ’s Aster & Links project, located at 1991 Main Street, in the heart of downtown Sarasota, Florida, and in close proximity to the world-famous St. Armand’s Circle and Longboat Key, is 70% complete, with leasing of apartments set to commence in the spring of 2024. Belpointe OZ is roughly 15% complete in its downtown full-featured luxury apartment complex in St. Petersburg, Florida. Both projects are located in the downtown districts within each city, close to the waterfront and key points of interest for work, dining, shopping, entertainment, and leisure activities.

In other key developments, Belpointe OZ has recently received a density increase approval for its Nashville, Tennessee master planned development and received approvals for its Mansfield/Storrs, Connecticut (University of Connecticut) properties. These are important milestones to advancing plans to develop new projects in both of these thriving cities, culminating a year of formidable progress for Belpointe OZ and we think positions the partnership extremely well heading into 2024. The potential to compound growth and income within QOFs on a tax-free basis expires December 31, 2047. In the meantime, the potential growth and income from capital gains reinvested into a QOF have an opportunity to be compounded free of taxation as long as the QOF investment is held for at least 10 years through December 31, 2047.

Further, in its effort to disrupt the U.S. real estate industry, Belpointe OZ is charging among the lowest fees in the market, including:

• No investors servicing fees;
• No disposition fees;
• 0.75% annual management fee; and
• 5% carried interest.

Belpointe OZ
255 Glenville Road
Greenwich, CT 06831
T: (203) 883-1944
E: IR@belpointeoz.com

The information in this communication is for illustrative, educational and informational purposes only and is subject to change. Nothing in this communication is or should be construed as an offer to sell or the solicitation of an offer to buy any securities. Offers may only be made by means of a prospectus.

Belpointe PREP, LLC (“Belpointe OZ”) has filed a registration statement (including a prospectus) with the SEC for the offering to which this communication relates. Prior to making an investment decision, you should read Belpointe OZ’s prospectus and the other documents that it has filed with the SEC in their entirety, and carefully consider its investment objectives and strategy, risk factors, fees and expenses and any tax consequences that may results from an investment in the offering. Copies of these documents can be obtained free of charge from www.sec.gov or investors.belpointeoz.com or from any broker-dealer participating in the offering.

The information in this communication should not be relied upon as investment or tax advice. You should consult with your own investment and tax advisers concerning the federal, state and local income tax consequences of purchasing, owning or disposing of securities in the offering, and of Belpointe OZ’s election to qualify as a partnership and qualified opportunity fund for federal income tax purposes. There is no guarantee that Belpointe OZ will continue to qualify as a partnership or qualified opportunity fund.

Past performance is not an indicator or a guarantee of future performance. An investment in the offering to which this communication relates involves a high degree of risk, including a complete loss of your investment, and may not be suitable for all investors. The price of Belpointe OZ’s securities will fluctuate in market value and may trade above or below net asset value. Brokerage commissions and expenses will reduce returns.

The offering to which this communication relates is being made on a best-efforts basis on behalf of Belpointe OZ through Emerson Equity, LLC, Member FINRA, SIPC, as managing broker-dealer.

©2023 Belpointe PREP, LLC. All rights reserved.